It sure wasn’t easy…. but I think that I’ve discovered the issue. You don’t believe that inter-product competition is important. From your perspective… it’s important for Dell to compete with HP (intracomp)… but it’s not important for computers to compete with clothes and cars (intercomp).

From my perspective, intercomp is just as important as intracomp. Perhaps it’s even more important. Intracomp can help ensure that Dell and HP don’t waste the money that they receive… but without intercomp… how can we be sure that the computer industry is receiving the right amount of money in the first place? It’s great if the computer industry is efficiently spending $500 billion dollars… but it’s not so great if it should only be efficiently spending $250 billion dollars. That extra $250 billion would be creating more value for society if it was spent on producing more clothes and/or cars. Having an abundance of cheap computers wouldn’t be so great if most of us had to walk to work in our underwear. A chain is only as strong as its weakest link.

Let’s keep it super simple and imagine that the two of us are stranded on an island… and there are only two jobs…

gathering food from the land

gathering food from the sea

EZRock52: We’re allocating too much labor to the sea!Xero: So both of should gather food from the land?EZRock52: Actually, the land has enough labor.Xero: If the land has enough labor, then how could the sea have too much labor?EZRock52: I’m tired of fishing! I want to be a free-rider!Xero: Free-riders get eaten!

When labor is inefficiently allocated… it’s impossible for only one industry to have the wrong amount of labor. Conversely, when labor is efficiently allocated… it’s impossible for any industry to have the wrong amount of labor.

If you think that the government is good at allocating the right amount of labor to defense… then you must also think that the government is good at allocating the right amount of labor to clothes, cars and computers. This is because more labor for defense logically means less labor for clothes, cars and computers. So it’s impossible for the government to be good at allocating labor to defense but bad at allocating labor to clothes, cars and computers.

This isn’t just true when it comes to labor… it’s true for every single resource. Allocating a resource always requires the sacrifice of alternative allocations.

Markets work because consumers first decide whether a new computer is worth sacrificing the alternative uses of their money (intercomp). If they decide that it is worth it… then the second thing that they have to decide is which computer company will provide them with the most value (intracomp).

Not-markets fail because they lack both intercomp and intracomp. You don’t seem to think that a lack of intracomp is an issue when it comes to public goods. And I suppose that we could debate whether it is an issue… but for me the lack of intercomp is a much bigger fish to fry.

You didn’t mention intercomp at all. If you can’t see the relevance of intercomp to public goods… then the relevance of intracomp to public goods is most definitely a moot point.

When a producer finds himself as sole producer he still has to worry about the activities of competing entrepreneurs. They are channeling their energies and their alertness into producing other products, which are competing for consumers’ attention also. Inter-product competition will not guarantee horizontal demand curves facing each producer. But it offers assurance that errors made in the identification of the most urgently needed consumer products (and/or of the most easily accessible resources) will tend rapidly to be noticed and exploited by alert, competing entrepreneurs. — Israel Kirzner, How Markets Work